Exam 23: Short-Run Decision Analysis

Contribution margin per unit is calculated as selling price per unit less fixed costs per unit.

McGraw Inc.manufactures 12,000 units of a part used in its production to manufacture guitars.The annual production activities related to this part are as follows: Hill Inc.has offered to sell 12,000 units of the same part to McGraw for $22 per unit.If McGraw were to accept the offer,some of the facilities presently used to manufacture the part could be rented to a third party at an annual rental of $18,000.Moreover,$4 per unit of the fixed overhead applied to the part would be totally eliminated. -What should McGraw's decision be,and what is the total cost savings that would result?

If the incremental costs for a special order of 8,000 units are $5,600 and the company would like to earn a minimum of $1,600 profit from the order,the minimum bid price would be

Keller Company is evaluating its two divisions,North Division and South Division.Data for the North Division include sales of $250,000,variable costs of $125,000,and fixed costs of $200,000,50 percent of which are traceable to the division.Data for the South Division include sales of $300,000,variable costs of $175,000,and fixed costs of $225,000,60 percent of which are traceable to the division. -Divisional income (or segment margin)for South Division is

The point where joint products or services become separable and identifiable is known as identifiable point.

Many management decisions are unique and hence incompatible with strict rules,steps,or timetables.

Wizard Company produces several cleaning products.Each product can be sold at the split-off point or processed further.The company's accountant has compiled the information that follows: -Which product provides the greatest amount of incremental revenue from further processing?

Before a company accepts a special order,it must

Kyle Inc.manufactures automobiles.In recent past,the company started buying brake shoes from an external vendor.Which of the following decisions was made by the company in this example?

With a special order decision,the fixed costs of existing facilities

Truman Company assembles products from a group of interconnecting parts.The company produces some of the parts and buys some from outside vendors.The vendor for Part Y has just increased its price by 35%,to $5 per unit for the first 5,000 units and $4.50 per additional unit ordered each year.The company uses 7,500 units of Part Y each year.Unit costs if the company makes the part are as follows: Should Truman Company continue to purchase Part Y or begin making it?

Relevant costs in a sell-or-process-further decision include

All of the following are qualitative factors that may be used by decision makers except

Contribution margin information is not relevant for

Keller Company is evaluating its two divisions,North Division and South Division.Data for the North Division include sales of $250,000,variable costs of $125,000,and fixed costs of $200,000,50 percent of which are traceable to the division.Data for the South Division include sales of $300,000,variable costs of $175,000,and fixed costs of $225,000,60 percent of which are traceable to the division. -Contribution margin for the company as a whole is

The idea behind incremental analysis is to review decision data that differ between alternatives.

Which of the following is an irrelevant cost in deciding whether or not to eliminate a producing department?

Courtney Sinclaire is trying to rent a new bicycle.She has narrowed her choices to two lease arrangements,each with unique characteristics.Bike Superior would rent for $220 per year,and Bike Deluxe's annual rent would be $250.Bike Superior would need a new seat costing $35 and new racing tires costing $95.The old seat and tires could be sold for $30.Bike Deluxe is fully equipped but would need to be painted at a cost of $110.Maintenance and upkeep on both bikes would average $60 per year. a.Identify the relevant data in this problem. b.Prepare an incremental analysis for Courtney to aid her in this decision. c.What decision should Courtney make?

Implementing an outsourcing decision that affects current operations falls under which stage of the management process?

Fixed costs are often irrelevant in make-or-buy decisions.